Overview
Trusts are essentially creatures of contract. Virtually all trusts are made in written form, either through an inter vivos or "living trust" instrument (created while the settlor is living) or in a will (which creates a testamentary trust). Therefore, in understanding certain terms in a trust, general rules of construction regarding interpretation of wills or other testamentary documents will apply. Subject to certain fundamental requirements of trusts, the UTC generally states that the terms of a trust instrument as written by the settlor will control over the "default rules" of the UTC. Where a document does not contain a provision that is otherwise covered by the UTC's default rules, the UTC will control.
Where a document contains obnoxious, unworkable, impractical, or outdated language, the beneficiaries and trustees have recourse to local courts having general jurisdiction in equity – most commonly for a declaratory judgment, judicial construction or reformation of the trust to bring it into compliance with the original intent of the settlor. Also, the court may be called upon to deal with circumstances not imaginable by the settlor at the time the trust was created to make the trust cy pres or as close as possible to the original intent.
Trusts are a special breed of contract in that they often govern the disposition of property in the same way a "last will and testament" does via a probate proceeding. Many states differ as to their procedures concerning the interpretation and administration of trusts created during life (i.e., the inter vivos trust) versus those created in a will which are typically subject to jurisdiction in probate proceedings (the testamentary trust). The UTC attempts to standardize the general composition of both trust forms and their requirements, but does not generally attempt to address the procedural questions as to overall subject-matter jurisdiction and other aspects of proceedings involving trusts. Instead, the vagarities of various state and local procedural rules will generally apply.
When titling property or otherwise referring to an existing trust, practitioners persist in referring to trusts as "Tr. u/a" (trusts under agreement, i.e. inter vivos trusts) or "Tr. u/w" (trusts under will, i.e. testamentary trusts). Industry convention is for the settlor's name to appear in the title. In the USA, the name follows a shorthand for the type of instrument. Hence: "Tr. u/a John Smith FBO Alma Smith" or, if appropriate, "Tr. u/a John Smith FBO Alma Smith irrevocable" (FBO means for benefit of). Titles also frequently include more information such as the existence of more than one trustee ("Co-tr. u/a John Smith": "co-tr" means co-trustee) or that one or more of the trustees are not the original trustee (Successor Co-Tr. u/a John Smith).
In understanding American trust law, it is helpful to understanding the terminology and definitions of various terms as they relate to trusts. The following section contains a discussion of some of these terms.
Read more about this topic: United States Trust Law